Threadneedle november 2011 v2
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Transcript of Threadneedle november 2011 v2
David Oliphant, Executive Director
Succeeding in a radically different Fixed Income environment
November 2011
The sovereign health checkCritical condition diagnosed for some, overblown concern for others
Interest cover & reliance on external financing
* Based on 2010 figures: Source: Eurostat and IMF Fiscal Monitor** Based on 2011 Government Budget Balance Estimates: Source: IMF
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Fiscal Balance & Debt as % of GDP
Source: Threadneedle, IMF Fiscal Monitor April 2011 and Haver Analytics as at 30 April 2011
2
PhilippinesMalaysia
Indonesia
India
China
South Africa
IsraelTurkey
Russia
Romania
Hungary
Poland
MexicoBrazil
Italy
Ireland
PortugalSpain
Greece
Germany
Japan
UK
US-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
0% 50% 100% 150% 200% 250%
Government debt (% of GDP)
Fisc
al b
alan
ce (%
of G
DP)
.
Developing economies Developed economies
Greece
Italy
Portugal
Ireland
Belgium
UK
France
Austria
Germany
Netherlands
USSpain
Japan0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0% 1% 2% 3% 4% 5% 6% 7%Interest payments as % of GDP2
% o
f gov
ernm
ent d
ebt h
eld
exte
rnal
ly1
What is the cure? Pick your poisonSolving the problem of excessive debt
Solution Does it work?Impact on
Sovereign Bond Prices
Impact on Risky Asset Prices
Borrow more to boost growth! Perhaps as an early policy response, but no longer a viable option Lower Higher
Default / Restructure debt NO, but might be the only option for some Lower Lower
Reduce debt load through austerity programs
Probably, but is unproven for large economies with highly levered private and financial sectors
Higher Lower
Renege on promises to local constituencies (pensions, social support programs)
YES, and much more to come Higher Higher
Re-finance debt through higher savings
YES, but at the expense of slow growth and inefficient allocation of capital Higher Lower
Print money & devalue currency YES, provided inflation is kept under control Uncertain Higher (in local currency)
Inflate your way out of the problem
NO, unless one can continuously surprise the markets Lower Lower
Estimates of likely impact assume other factors remain unchanged
3PT/11/00506
Source: Capital Economics as at September 2011
Interest rates are establishing record lows, but is there still room to rally?Long rates have caught up to ultra-low short rates
Source: Capital Economics as at September 2011
4PT/11/00506
5
US – fiscal deterioration not priced in
Source: IMF, JPMorgan, Threadneedle , August 2011
EM– fiscal improvement not priced in
Source: IMF, JPMorgan, Threadneedle , August 2011
0
2
4
6
8
10
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F30
35
40
45
50
Govt debt (% GDP, rhs) EMBIG Index spread (%, lhs)
GBI-EM Global yield (%, lhs)
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F40
50
60
70
80
90
100
110
Govt debt (% GDP, rhs) US 10y yield (%, lhs)
Emerging markets still appear attractiveRelative debt sustainability metrics are heavily tilted in EM’s favour
PT/11/00506
Corporate market fundamentalsCompanies are in relatively good shape
Header & Footer – update footer reference
European IG issuer leverage(based on ~170 credits)
Source: Morgan Stanley Research, Markit iBoxx
6
Investment Grade deleveraging continues to remove bonds from the market
Corporates are in considerably better financial health than in credit crunch (2008-09)
Uncertainty (political, economic) seems to have made companies more cautious than otherwise
Very high marginal cost of funding for banks (unsecured) has made bank lending far less attractive
Source: Morgan Stanley, October 2011
The Debt-Equity Clock
4 3
21
The Debt - Equity cycleCorporate Leverage is low and not yet rising?
PT/11/00506 7
Corporate Leverage fallingREPAIR2H08 onwardsBalance sheet repair, rights issues to pay back debt, focus on cash generation and survival!
Credit better than equity
Higher Economic growthLower Economic growth
Corporate Leverage rising
RECOVERY2H 2009 - ?
Restructuring efforts boost cashflow. Margins rising, FCF growing, leverage falling
Both equity and credit up
EXPANSION2006-07
Margins peak, leverage rising, FCF falling, volatilityrising, M&A/LBOs more speculative. Credit bearmarket starts, equities still in bull market
Equity better than Credit
DOWNTURN2H07, 1H08Recession. Attempts to delever foiled by falling asset prices. Continued bear market for credit. Equities enter bear market
Both Equity and Credit Down
Corporate bond valuationsCorporate market pessimism is very high
The € CDS credit market is implying a very highlevel of Investment Grade defaults in thecoming years
At current spread of around 170, European Creditmarket is discounting 14% cumulative defaultprobability (on a 40% recovery assumption).
Itraxx Main Index is a basket of 100 Corporateand 25 Senior Financial issuers
Historic experience has been far less than this
Average 5-year default experience is 0.8%
Worst cohort exhibited 2.4% in last 40 years
‘Great Depression’ estimated at around 5%
PT/11/00506 8
Implied investment grade defaults
Current iTraxx Main Index 170
Assumed recovery rate 40% 20%
5-year assumed default rate 13.7% 9.3%
Source: Bloomberg as at 4 November 2011
5-year cumulative default rate history
Corporate bond valuationsHistorical experience is very different
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Cum
ulat
ive
defa
ult r
ate
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Source: JP Morgan as at June 2010
9
Default rate vs. high yield bond spread
Source: Credit Suisse, JP Morgan August 2011
High yield market pessimismDefault rate vs. spread to worst
0%
2%
4%
6%
8%
10%
12%
14%
16%
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Default Rate (LHS) US Spread (RHS) Europe Spread (RHS)
10PT/11/00506
Bond market outlookIs there any value left in Fixed Income markets?
PT/11/00506 11
Source Bloomberg – 4th November 2011
10-year Government Bond Yields
Source: Bloomberg 4 November 2011
0
5
10
15
20
25
30
Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11
Japan Germany USA Italy Greece
Euro High Yield & Corporate Bond Spreads
Source: Merrill Lynch 4 November 2011
0
500
1000
1500
2000
2500
Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-110
50
100
150
200
250
300
350
400
450
500
Euro high yield Euro IG (RHS)
Eurozone Corporate Bond Spreads and Volatility
Source: Merrill Lynch 4 November 2011
Refine your risk frameworkRisk is about losing money, not statistics
PT/11/00506 12
At which point is your money more at risk? At which point is there more opportunity?
0
50
100
150
200
250
300
350
400
450
500
03/07/97 03/20/1998 04/09/99 04/07/00 04/20/2001 04/26/2002 05/02/03 05/07/04 05/20/2005 05/26/2006 06/01/07 06/06/08 06/12/09 07/02/10 07/08/110
10
20
30
40
50
60
70
80
90
Spread (LHS) Standard Deviation (RHS)
Volatility Yield Premium
Here?
Here?
Threadneedle Global Opportunities Bond Fund
Please note this fund is currently only registered in Luxembourg, the Netherlands and Switzerland. It may therefore not be offered to the public in any other country. The information contained in this presentation is strictly for your internal use only and must not be passed on to any third party.The registration process for other countries is currently underway.
Our proposition
Threadneedle (Lux) Global Opportunities Bond Fund
An unconstrained, diversified, high conviction investment approach employing a wide variety of strategies
Target return of 1 Month USD LIBOR + 4.5% (gross of fees)
By investing in bonds, currency and derivatives
Designed to adapt to different phases of the economic cycle
Aims to deliver a positive return over any 12 month period irrespective of market conditions
Invests in best ideas generated by Threadneedle’s highly experienced specialist fixed income team
PT/11/00506 14
A ‘go anywhere’ fixed income portfolio aiming for positive returns in all markets
Implications for InvestorsBroaden the opportunity set, think across borders
PT/11/00506 15
Cash (Libor)
Designed to minimise exposure to interest rates
Term (Libor)
Has interest rate risk but no defined risk/sector exposures
Traditional
Comprised of multiple securities with varying exposure to interest rates
Benchmark – ‘Beta’
Performance unconstrained by benchmark beta
Product suitable for all market conditions
Risk controlled to suit performance target
Total return
Duration
Yield Curve
Geography
Currency
Asset Allocation
Security selection
(IG, HY, EM, Sovereign)
Opportunity Set – ‘Alpha’
++ ==
Fixed income sectors £20.8 billion
Source: Threadneedle as at 30 June 2011
Threadneedle’s fixed income credentials
A leader in fixed income
Focused on innovation and client solutions
Research led, using fundamental, structural and valuation analysis
Deep resource
Complementary strengths covering all major fixed income markets
Dedicated risk management team
Culture of collaboration and communication
Entire team participates in idea generation, discussion and debate
Source: Threadneedle as at 30 June 2011AUM exclude externally managed funds under administration
PT/11/00506 16
Government33.5%
Investment grade28.1%
EMD in Hedge6.2%
ABS8.9%
ARB4.3%
HY inc Credit Opps15.2%
Treasury3.0%
Team approach gives information advantage
Threadneedle Global Opportunities Bond FundPortfolio Construction Team
Source: Threadneedle as at 30 June 2011
Head of Fixed Income
James CielinskiLead portfolio manager28 years experience
Emerging Market £1.4bn AUM
Richard HouseStrategy Head17 years experience
Asset Backed £2.1bn AUM
Henry CookeStrategy Head25 years experience
Government & FX £7.7bn AUM
Quentin FitzsimmonsStrategy Head20 years experience
Manages the allocation of the risk budget
Manage individual strategies within the fund
17
Investment Grade £6.4bn AUM
David OliphantStrategy Head22 years experience
High Yield £3.5bn AUM
Barrie WhitmanStrategy Head24 years experience
PT/11/00506
Drawing on the best ideas from across the group
Fixed Income TeamExperienced teams across all asset sectors
18
Credit
Investment Grade
David Oliphant
Simon Bond
Alasdair Ross
David Morgan
Paul Smillie
Jonathan Pitkänen
Arabella Duckworth
Mindaugas Lepeska
High Yield
Barrie Whitman
Michael Poole
David Backhouse
Jeff Mueller
Jenny Wong
Gareth Simmons
Craig Nicol
Investment Specialists
Mark Baker
Alexander Batten
Macro
Government and FX
Quentin Fitzsimmons
Dave Chappell
Martin Harvey
Richard Stevens
Matt Rees
Matthew Cobon
Emerging Market Debt
Richard House
Henry Stipp
Agnès Belaisch
Nicolas Jaquier
Commodities
David Donora
Daniel Belchers
Nicolas Robin
Securitised
Mortgage & Asset Backed Products
Henry Cooke
Ashley Burtenshaw
Sergey Podzarov
Steven Fleming
Shane Stanton
Michael Groom
Liquidity Markets
Treasury & Dealing
Emma Photis
Sarah Kendrick
Cindy Larke
Paul Witchalls
Gabriel Heskin
Mandy Coatsworth
Jim CielinskiHead of Fixed Income
Source: Threadneedle as at 31 August 2011
PT/11/00506
Threadneedle’s approach to fixed income
Idea generation
Research
Portfolio construction
Risk management
To deliver results we strive to be outstanding in each of these key
interlocking areas
Expertise must evolve with the markets
PT/11/00506 19
Threadneedle’s investment approach
Incorporates multiple sources of return
Specialist fixed income teams generate best ideas
Asset allocation across all asset types
Global Opportunity Bond Fund
Currency
Interest rate duration
Country / yield curve
Investment grade
ABS / Mortgages
High yield
Emergingmarkets
Short duration carry
strategies
PT/11/00506 20
Fixed income research
21
Apply common scenario framework
Identify individual assets
Formulate scenarios (eg. Eurozone crisis,
Middle East, global QE)
Stress test widely varying assets to similar
scenarios
Score assets by risk-adjusted returns
Asset allocation Fundamental Structural Valuation Overall
score
Govt.bond +1 -1 0 -1
Investment grade 0 0 +1 +1
High yield +1 0 +1 +1
EM credit +2 +1 0 +2
EM local currency +1 -2 +1 0
ABS -1 0 +2 +1
Source: Threadneedle as at 30 June 2011Scale: -2 (max underweight) to +2 (max overweight)
Rel
ativ
e to
risk
free
PT/11/00506
A diversified yet high conviction approach
Portfolio construction
Target –1-month USD Deposit Rate
plus 4.5% (gross of fees)
Core portfolio
Overlay portfolio
+Weightings can vary significantly reflecting market outlook
Achieving alpha through currency and derivatives
Arbitrage, Relative Value and Directional strategies
Hedging of unwanted portfolio risk
High quality securities of 0–3 years’ duration
Cash, deposits, sovereign and quasi-sovereign debt, corporate bonds and AAA asset and mortgage backed securities
22PT/11/00506
Risk management
Estimated contribution to total portfolio risk*
Diversification of strategies is paramount to the process
Attractiveness of strategies will vary over the cycle
No single strategy will overwhelm the other portfolio risk balance
Rates20%
Asset class allocation
13%
Security selection (HY,
IG, EM, Sovereign,
ABS)34%
Currency13%
Carry (HQ short
duration)20%
*over a full investment cycle
23PT/11/00506
Diversification is critical for our process
Threadneedle Absolute Return Product Range
Global Opportunities BondFund Target Return Fund Credit Opportunities Bond
FundAbsolute Emerging Markets
Macro Fund
Benchmark 1M $ LIBOR 3M Euribor 1M EURIBOR 3M $ LIBOR
Performanceobjective BM +4.5% gross BM +3.0% gross BM +3.5% gross 7.5%–12.5% net
Asset class focus Diversified global Macro, DevelopedGovernments, Rates, FX
Credit – Investment Grade and High Yield
Emerging market sovereign, local and international
currency and FX
Launch date August 2011 April 2006 May 2009 September 2010
Relative performance since inception +0.59% +2.20% p.a. +5.97% p.a. -2.00% p.a.
24PT/11/00506
Source: Threadneedle as at 30 September 2011
Investment process in action
PT/11/00506 25
Strategy and positioning (relative to risk free rate) Threadneedle view Risks to our view
Duration (10-year) Favour curve flatteners in US, UK & Core Europe
Significant risks to global growth outlook remain
Italy key & in focus with yields potentially heading to 7% and Berlusconi under pressure
BTP and DAX futures are barometers for risk on/off
Short term Euro ‘bazooka’
Internationally co-ordinated monetisation
An upside surprise in economic data
Money printing causes curve to steepen
International agreement to regulate FX markets and/or behaviour in markets
Currency Long USD vs. JPY,CHF,EUR,GBP,AUD
Long Asian FX vs. European FX on structural need for appreciation
CHF the most expensive currency in the world
Long EUR vs. SEK
Shirt USD vs. MXN, short AUD vs. Chilean Peso
EM central bank diversification into £ and € inflates values
Credible fiscal steps in Japan boosts JPY
Positioning unwinds in Asia
USD sell off following rating downgrade
Emerging Markets Local (rates and currency)
Received in selective short end rates
Neutral FX given macro uncertainty
Short term bouts of risk aversion
Policy mistakes
Emerging Markets Sovereign Credit (USD denominated)
Attractive risk/return profile
Solid credit fundamentals
Spreads have widened creating a buying opportunity
Significant slowdown in external demand
Investment Grade Corp Although tail risk remains elevated, spreads exhibiting considerable value against macro outlook and balance sheet fundamentals
Some evidence of retail and institutional inflows given low gilt yields and volatility elsewhere.
Eurozone problems produce bank/financial contagion
Spreads already very tight if viewed against local government yields rather than Bunds
High Yield Corporate Spreads wide vs. default rates, which will remain low
Inherently low interest rate duration
Demand for income in a low growth world
Developed market growth < 1.5% (recession fears)
Risk of forced selling on asset class outflows
ABS / MBS Outsized liquidity premiums persist
Will benefit from low rates and demand for income
Attractive levels of credit enhancement
Sharp deterioration in property values
Outperformed senior financials over past two months – expect that continue in near term
Commodities Continued negative macro forces slowing global industrial demand
China now neutral but slowing
European crisis
Financial crisis
China credit crisis
€¥ £$
-2 -1 0 +1 +2Short Long
Summary
Why Threadneedle for unconstrained absolute return fixed income
A global ‘go anywhere’ bond fund designed to succeed in a radically different fixed income environment
Aims to achieve attractive returns while taking an acceptable level of risk - targets a return of 1 month USD LIBOR + 4.5% (gross of fees)
Bringing together the best ideas from across Threadneedle’s extensive and experienced bond team
Proven investment philosophy and process
Extremely strong track record across the fixed income universe
PT/11/00506 26
Meeting the challenges of today’s fixed income markets
Threadneedle Global Opportunities Bond Fund
Cumulative performance (%) September 2011
Since Inception
Threadneedle Global Opportunities Bond Fund (Gross)
0.61 0.77
USD Libor 3 Month 0.02 0.02
Geometric relative return +0.59 +0.75
27
Cumulative performance (%) September 2011
Since Inception
Threadneedle Global Opportunities Bond Fund (Net)
0.47 0.60
GIFS Offshore Alternative Long Short Debt -6.77 -6.82
Geometric relative return +7.76 +7.97
Fund performance is based on official Global Close prices. All returns include gross reinvested income and fund returns are gross of TER. All prices are calculated by the fund's administrators Dexia. Inception date 24.08.11.
Fund returns are calculated using official global close prices as calculated by the fund's administrator Dexia. All performance is quoted in USD Terms. Source Morningstar. Inception date 24.08.11.
PT/11/00506
Appendix
AP
Threadneedle Global Opportunities Bond Fund Fund details
Fund Manager Jim Cielinski (Lead Portfolio Manager)
Launch date 24 August 2011
Objective The Fund seeks to achieve an absolute return over a 12 month time horizon1
Target tracking error 500-600bps tracking error over a market cycle
Performance benchmark 1 month USD LIBOR + 4.5% (gross of fees)
Dealing Daily
Legal structure SICAV (Luxembourg-domiciled)
Fees 0.65%, 15% performance fee over the performance benchmark (with high water mark)
No. of positions Typically 75 to 125 holdings (long and short)
Gross exposure Typically between 175% and 400% (longs + shorts)
Net exposure Typically between -50% and +175% (longs - shorts)
Instruments Long / Short: Cash fixed income instruments, futures, swaps, options
Currency USD, EUR-hedged, GBP-hedged, CHF-hedged,
1 Investors should note that the fund does not offer any form of guarantee with respect to investment performance and no form of capital protection will apply2 Aggregate of management fee and shareholder servicing fee
PT/11/00506 29
Careful management of risk budget
Risk budget ensures diversification and assist sizing of trades
Attractiveness of sources of return will vary over time
Fund is designed not to rely excessively on any one strategy
Representative risk budget
Strategy Target risk(tracking error)
Expected return (Above Libor)
Interest ratesDuration & yield curve 1.00% 0.30%Country selection 0.80% 0.32%
Currency 0.90% 0.54%Asset class allocation
Strategic (short duration) 1.70% 1.19%Cross-asset class 1.10% 0.39%
Security selectionOECD sovereign 0.60% 0.30%Emerging market 0.75% 0.45%High yield 0.75% 0.45%Investment grade corporate 0.60% 0.36%Securitised (ABS/MBS) 0.75% 0.45%
Total 6.10% 4.75%
PT/11/00506 30
Global Opportunities Bond Fund
Avoids and/or hedges out unquantifiable tail risk and helps lessen impact of shocks
Offers a global approach to finding the best risk-reward across asset classes
Has considerable flexibility in taking and managing interest rate exposure
Targets a return of 1 month USD LIBOR+ 4.5% (gross of fees)
Market concerns
Policy risk is unpredictable and often impossible to analyse
Asset class labels no longer characterise risk-return
When rates are low capital returns are threatened by rising yields
Achieving attractive returns with an acceptable level of risk
Threadneedle (Lux) Global Opportunities Bond FundAn unconstrained fixed income solution to address investor concerns
Aims to deliver a positive return over any 12 month period
PT/11/00506 31
Threadneedle (Lux) Global Opportunities Bond FundDesigned to minimise interest rate exposure
10 year Government Bond Yields
Source: Bloomberg, June 2011
Yield increase on 10 year bonds that would generate a negative annual return
Source: Bloomberg, June 2011
Interest rates are at multi decade lows
Many traditional bond strategies offer poor protection from rising interest rates
0123456789
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Yie
ld
Gilts Treasuries JGBs Bunds0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10
The Threadneedle (Lux) Global Opportunities Bond Fund is designed to deliver positivereturns in both rising and falling rate environments
PT/11/00506 32
Government bond fundamentalsLow Economic growth for sometime to come
UK GDP
Eurozone GDP
US GDP
Japan GDP
Source: Bloomberg as at 31 August 2011. All data is year on year. US, Euro and Japan is seasonally adjusted
33
-10%
-5%
0%
5%
10%
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Cha
nge
(YoY
) .
GDP Average Threadneedle estimate
-12%-10%
-8%-6%-4%-2%0%2%4%
1997 1999 2000 2002 2003 2005 2006 2008 2009 2011
Cha
nge
(YoY
) .
GDP Average Threadneedle estimate
-8%-6%-4%-2%0%2%4%6%
2000 2001 2003 2004 2006 2007 2009 2010
Cha
nge
(YoY
) .
GDP Average Threadneedle estimate
-8%-6%-4%-2%0%2%4%6%
2000 2001 2003 2004 2006 2007 2009 2010
Cha
nge
(YoY
) .
GDP Average Threadneedle estimate
-6%-4%-2%0%2%4%6%
1995 1996 1998 1999 2001 2002 2004 2005 2007 2008 2010
Cha
nge
(YoY
) .
GDP Average Threadneedle estimate
PT/11/00506
Japan CPI
US CPI
Government bond fundamentalsLow Inflation
UK CPI
Eurozone CPI
Source: Bloomberg as at 31 August 2011. Japan CPI is year on year. Euro CPI is core year on year, ex food & energy. UK CPI is year on year EU Harmonised. US CPI is core year on year ex food and energy
34
0%
2%
4%
6%
8%
10%
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Cha
nge
(YoY
) .
CPI Average Threadneedle estimate
0%
1%
2%
3%
4%
1995 1996 1998 1999 2001 2002 2004 2005 2007 2008 2010 2011
Cha
nge
(YoY
) .
CPI Average Threadneedle estimate
-4%
-2%
0%
2%
4%
6%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Cha
nge
(YoY
) .
CPI Average Threadneedle estimate
0%
1%
2%
3%
4%
5%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Cha
nge
(YoY
) .
CPI Average Threadneedle estimate
PT/11/00506
Growth and Corporate Bond SpreadsEconomic pessimism is high
PT/11/00506 35
US Corporate bond spreads and economicgrowth seem to be reasonably correlated(see chart left)
US Corporate bond spreads seem to bediscounting a severe US economicoutlook. Our regression model suggests economic growth of
around zero is consistent with current spreads of227bps (4/11/11) in the USA. This is much worsethan our forecast.
Threadneedle Growth forecast is 1.5% for 2011 &2012.
Consensus Forecast is 1.8% this year and 2.4% in2012Source Bloomberg/Merrill Lynch – November 2011
US GDP Growth & Corporate Spreads
Threadneedle total AUM – £67.7 billion
Source: Threadneedle as at 30 June 2011
Threadneedle Investments
An established global asset manager
Founded 1994
AUM £67.7 billion
127 investment professionals & 615 employees
Sole focus is active management of client assets
Equities
Fixed Income
Commodities
Multi-Asset
Property
Owned by Ameriprise Financial Inc.
AUM – institutional vs. wholesale
Source: Threadneedle as at 30 June 2011
PT/11/00506 36
Property8.5%
Equities58.0%
Fixed income30.7%
Cash2.8%
Source: Threadneedle as at 30 June 2011 AUM excludes externally managed funds under administration
Retail33.0%
Institutional67.0%
An established and active global manager
Investment philosophy – out-think, out-perform
PT/11/00506
We are stronger collectively than as individuals
Our investment process is structured to reflect this belief
We have a global approach and cover all asset classes
37
Teamwork defines us
out-think
teamwork
out-perform
All asset classes
Globalapproach
Investment process – out-think, out-perform
PT/11/00506 38
Economic background
Sectors and themes
Asset allocation
Valuation framework
Asset and sectorallocation models
Themes / analysis and debate
Bottom-up security selection across capital structure
Equity
Multi-asset
Fixed income
Absolute return
Debate Execution / deliveryIdea generation
+ +
2. Team work 3. Out-perform1. Out-think
out-think
teamwork
out-perform
All asset classes
Globalapproach
This sets the agenda for our specialist teams
Collectively we form a global investment view on
The central case for economies
The valuation of asset classes
Outstanding fixed income performance
Strategy type Fund Currency Gross / Net
6 months 1 year 3 years (p.a.) 5 years (p.a.)
Fund Rel. Fund Rel. Fund Rel. Fund Rel.
Single strategy
Govt. and rates
Threadneedle Sterling Bond Fund GBP Gross -3.29 +0.26 -6.51 -0.01 2.89 -0.01 0.27 +0.20Threadneedle European Bond Fund EUR Gross 0.10 +0.09 -0.20 +0.72 8.34 +2.89 5.27 +1.85Threadneedle Global Bond Fund EUR Gross -3.16 -0.57 -8.34 -1.37 8.13 +1.42 4.53 +0.68
Emerging marketsThreadneedle Emerging Market Bond Fund USD Gross -2.67 +0.09 -5.81 -0.22 13.98 +0.39 8.21 +1.25Threadneedle Emerging Market Local Fund USD Gross -1.88 -0.83 -0.09 -1.18 12.77 -1.07
High yieldThreadneedle High Yield Bond Fund GBP Net -1.68 -0.24 2.18 -0.47 6.68 +1.51 2.20 +2.06Threadneedle European High Yield Bond Fund EUR Net 3.70 +0.11 14.02 +1.37 11.23 +0.35 7.12 +0.62
Investment gradeThreadneedle UK Corporate Bond Fund GBP Net -1.98 +0.83 -3.65 +0.95 2.84 +0.80 -1.41 +0.36Threadneedle European Corporate Bond Fund EUR Gross 3.03 +1.49 5.76 +3.05 6.24 -0.07 3.48 -0.42
Multi-strategyCredit / High Yield Threadneedle Strategic Bond Fund GBP Net -1.98 -0.02 -0.90 +1.25 4.22 -0.21 -0.22 +0.02Credit / Gov’ts Threadneedle Dollar Bond Fund USD Net -4.89 +0.66 -11.57 +1.50 7.96 +0.17 1.85 -0.81
Alternative
Govt. and rates
Threadneedle Absolute Return Bond Fund GBP Gross -6.88 -2.25 -10.82 -2.44 0.03 +2.74 -0.21 +1.83Threadneedle Target Return Fund EUR Gross -1.96 -2.57 -1.68 -2.74 3.88 +2.20 4.34 +1.65T(Lux) Target Return USD Fund USD Gross -9.89 -2.75 -17.35 -2.47Threadneedle Target Return Core Fund EUR Gross -0.94 -1.37 -0.72 -1.40 2.10 +0.96
Credit / High Yield Threadneedle Credit Opportunities Fund EUR Gross 2.83 +2.37 7.66 +6.88Emerging Markets T(Lux) Absolute Emerging Markets Macro Fund USD Gross -4.85 +2.68Commodities T(Lux) Enhanced Commodities Fund USD Gross -4.15 +6.33 15.12 +8.23
Source: Morningstar to 30 June 2011. Data shown in €. All fund data is based initially in £ share classes, and converted to different currencies using Global-Close FX rates. Fund Returns calculated from 12 noon (UK Time) prices to 31 December 2007 and Global Close prices from 31 January 2008 onwards compared to Global Close Indices. Fund data is quoted on a bid-bid basis with income re-invested at bid. Fund data is gross of tax and T.E.R to facilitate comparison with the indices. Performance for periods greater than one year is annualised. Index data provided by Thomson Financial DataStream, iBoxx, and Merrill Lynch.
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Biography
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DAVID OLIPHANT
David began his career in 1989 with Eagle Star Investment Managers1 as a Sterling Bond analyst. He progressed to managing multi-currency portfolios for Eagle Star and then from 1994, for Threadneedle. David chairs the Fixed Income Themes meeting and is Head of Investment Grade Credit.He graduated in 1988 with an honours degree in economics from the University of St Andrews. He is an associate member of the UK Society of Investment Professionals. Threadneedle start date: 1994Industry start date: 1989
1 Eagle Star Investment Managers became part of Threadneedle in May 1994
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Biography
JAMES CIELINSKI
James Cielinski joined Threadneedle in 2010 as Head of Fixed Income. In this role he is responsible for the overall management of the fixed income business, including investment process, product development and investment strategy. He is also a key participant in Threadneedle’s asset allocation process.Prior to joining Threadneedle James spent 12 years at Goldman Sachs, leaving as Head of Global Credit – Investment Grade. He has also held senior investment roles at Utah Retirement Systems and Brown Brothers Harriman.James graduated from the University of Utah in 1983 with a BSc in Finance and gained an MBA from New York University in 1988.He is also a Chartered Financial Analyst and a member of the UK Society of Securities Analysts.Threadneedle start date: 2010Industry start date: 1983
BARRIE WHITMAN
Barrie Whitman joined Threadneedle in 1999 as Head of High Yield. He manages the Threadneedle High Yield Bond, European High Yield Bond and Strategic Bond Funds as well as a number of institutional mandates. He is also Lead Manager of the Threadneedle Credit Opportunities Fund.Barrie began his investment career in 1987 at United Bank of Kuwait as a credit analyst specialising in high yield bond investment. In 1990 he became a high yield fund manager and, in 1996, CIO for High Yield Investments. He then moved to Standard Bank London in 1997 as Head of European High Yield and Distressed Debt.Barrie graduated in 1982 with a BSc in Economics and Accounting from Hull University and qualified as a Chartered Accountant in 1986. He is a member of the Institute of Chartered Accounts in England and Wales. Threadneedle start date: 1999Industry start date: 1987
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Biography
RICHARD HOUSE
Richard House is Head of Emerging Market Debt at Threadneedle. He also manages a number of the company’s emerging market bond portfolios.Prior to joining Threadneedle in 2007, Richard worked for Wadhwani Asset Management as an emerging markets portfolio manager / trader. He has also worked for HSBC as a portfolio manager responsible for a listed emerging markets debt fund and at Lombard Odier as an emerging markets analyst/portfolio manager.Richard holds a BSc in economics and computer science from the University of Sunderland and an MSC in finance and investment from the University of York. Threadneedle start date: 2007Industry start date: 1994
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HENRY COOKE
Henry Cooke joined Threadneedle in 2010 to run the company’s Asset-Backed Securities Desk in London. In addition to the day-to-day management of the team, he is responsible for raising ABS assets and managingasset-backed positions.Prior to joining Threadneedle Henry worked for five years at Barclays Capital, where he became a Managing Director. He has also held the role of Head of Enterprise Risk at Marsh & McLennan and worked for Nomura International and Goldman Sachs.Henry has an engineering degree from the University of Nottingham.Threadneedle start date: 2010Industry start date: 1986
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Biography
QUENTIN FITZSIMMONS
Quentin Fitzsimmons is an Executive Director and Head of Government Bonds and Foreign Exchange at Threadneedle. He has significant experience and a strong track record in managing third party institutional fixed income client mandates for over 10 years, encompassing the full range of economic and market conditions.Quentin began his career in 1991 at Sun Life Assurance Company of Canada, where he progressed to Senior Investment Analyst before moving to the Equitable Life Assurance Society in 1994 as Senior Portfolio Manager. He then joined F&C (formerly Foreign & Colonial) Investment Management in 1999 and became Director of Fixed Interest (UK bonds) before joining Threadneedle in September 2003.Quentin graduated in 1989 from the University of Bristol with a first class honours degree in economics and economic history. He is also a Member of the Society of Business Economists and has gained professional investment qualifications via the IIMR.Threadneedle start date: 2003Industry start date: 1991
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Important Information
All data as at 30 June.2011 unless otherwise shown. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up.
The research and analysis included in this document has been produced by Threadneedle for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Any opinions expressed are made as at the date of publication but are subject to change without notice.
Threadneedle (Lux) is an investment company with variable capital (Société d’investissement à capital variable, or "SICAV") formed under the laws of the Grand Duchy of Luxembourg. The SICAV issues, redeems and exchanges shares of different classes, which are listed on the Luxembourg Stock Exchange. The management company of the SICAV is Threadneedle Management Luxembourg S.A, who is advised by Threadneedle Asset Management Ltd. and/or selected sub-advisors.
The SICAV is registered in Austria, France, Germany, Hong Kong, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, Switzerland, Taiwan and the UK; however, this is subject to applicable jurisdictions and some sub-funds and/or share classes may not be available in all jurisdictions. Shares in the Funds may not be offered to the public in any other country and this document must not be issued, circulated or distributed other than in circumstances which do not constitute an offer to the public and are in accordance with applicable local legislation. Shares in the Funds may not be offered, sold or delivered directly or indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as defined in Regulation S under the 1933 Act.
This material is for information purposes only and does not constitute an offer or solicitation to an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. Subscriptions to a fund may only be made on the basis of the current Prospectus or Simplified Prospectus and the latest annual or interim reports, which can be obtained free of charge on request, from the SICAV's registered office at 69, route d'Esch, L-1470 Luxembourg, Grand Duchy of Luxembourg, or, for Sweden, the Swedish paying agent, Skandinaviska Enskilda Banken AB (publ), Sergels Torg 2, 106 40 Stockholm, Sweden. Please read the prospectus before investing. Investors should note the “Risk Factors” section of the Prospectus in terms of the risk applicable to investing in this Fund.
Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 74, rue Mühlenweg, L-2155 Luxembourg, Grand Duchy of Luxembourg.
Issued in Hong Kong by Threadneedle Portfolio Services Hong Kong Limited ("TPSHKL"). Registered Office: 21F ICBC Tower, Citibank Plaza, Central, Hong Kong. Registered in Hong Kong under the Companies Ordinance (Chapter 32), No. 173058. Authorised and regulated in Hong Kong by the Securities and Futures Commission. Please note that TPSHKL can only deal with professional investors in Hong Kong within the meaning of the Securities and Futures Ordinance. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document you should obtain independent professional advice.
Issued in Singapore by Threadneedle Investments Singapore (Pte) Limited, 07-07 Winsland House 1, 3 Killiney Road, Singapore 239519. The Fund mentioned in this document is a restricted scheme and is available only to residents of Singapore who are Institutional Investors under Section 304 of the SFA, relevant persons pursuant to Section 305(1), or any person pursuant to Section 305(2) in accordance with the conditions of, any other applicable provision of the SFA. The Fund is not authorised or recognised by the Monetary Authority of Singapore (the “MAS”) and Shares are not allowed to be offered to the retail public. This document is not a prospectus as defined in the SFA. Accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply.
In the UK issued by Threadneedle Asset Management Services Limited. Registered in England and Wales, Registered No. 573204, 60 St Mary Axe, London EC3A 8JQ, United Kingdom. Authorised and regulated in the UK by the Financial Services Authority.
Threadneedle Investments is a brand name and both the Threadneedle Investments name and logo are trademarks or registered trademarks of the Threadneedle group of companies. threadneedle.com
Information for Investment Professionals (not for onward distribution to, or to be relied upon by, private investors)
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